William K. Black: Brown-Vitter Will Not and Cannot Work but it is Criminogenic

[marmar]

from New Economic Perspectives:



Brown-Vitter Will Not and Cannot Work but it is Criminogenic
By William K. Black


Senators Sherrod Brown (D-OH) and David Vitter (R-LA) have introduced a bill entitled “Terminating Bailouts for Taxpayer Fairness Act of 2013.” It is a miracle of modern staffing that Vitter, who loves polluters as much as his prostitutes, was able to pull himself away from demanding that President Obama’s nominee to run the EPA answer over 600 questions and join Brown in proposing the bill. Under Obama, bipartisan bills have a dismal fate because the Democrats negotiate away key elements necessary to create a good bill and add provisions that make parts of the bill harmful – just to pick up a few token co-sponsors – and then the Republicans kill good parts of the bill anyway and try to enact the bad parts.

Brown-Vitter (BV) exemplifies all three problems. It would fail to achieve its desirable goals even if it became law. It would help the largest fraudulent banks continue to cripple effective examination. The Republicans will kill the well-meaning parts of the bill and try to enact the bad parts of the bill that are so bad that they are criminogenic.

One of the most essential actions we need to take is to eliminate systemically dangerous institutions (SDIs) (the rough dividing line is any bank with > $50B in liabilities). Dodd-Frank did nothing effective to end SDIs. So BV could be a sensible, even vital reform if it were drafted to end SDIs and if it were enacted. It was not drafted to end SDIs and it will be weakened before it is killed.

.......(snip).......

Brown and Vitter do not understand the ephemeral nature of capital. “Capital requirements will focus on common equity and other pure, loss-absorbing forms of capital.” Brown and Vitter’s conception that capital can be something that is “pure” and can be counted on to be there when the bank fails to “absorb” “loss” is a dangerous delusion that demonstrates that Brown and Vitter do not understand the most basic and critical concepts of finance, accounting, and regulation. They seem to believe that there is some vault in a bank that holds “capital” and that there is “pure” capital that will remain in the “pure” “capital” vault even after the bank is looted. It is dangerous to believe in such absurd myths. ...................(more)

The complete piece is at: http://neweconomicperspectives.org/2013/05/brown-vitter-will-not-and-cannot-work-but-it-is-criminogenic.html

[Benton D Struckcheon]

1. Wow

I haven't read the links inside that piece yet, but I did read the entire piece itself to the end. Very disturbing.
Re Lehman, which he references often: I remember that on the Monday or Tuesday after their bankruptcy weekend, they published all their assets and liabilities. Everyone had the same reaction: they weren't even technically bankrupt. Now we know better, but at the time everyone was scratching their heads wondering what just happened.